Vickie Villegas sits in the waiting room at Westcoast Neurology in Pasadena. She has faced steep medical bills since being diagnosed with multiple sclerosis. Photo by Brandon Tausik for CalMatters
Vicky Villegas had to pay $3,000 out of pocket each time she received treatment for multiple sclerosis, a disease that attacks the central nervous system. Villegas, who lives in the Pasadena area, said her doctor recommended she get treatment twice a year to prevent the disease from getting worse, but she couldn’t afford it.
“I just couldn’t keep up,” said Villegas, whose disease progressed to the point where she lost the use of her left hand.
When Esteban Rodriguez Hernandez was hospitalized for a week with an infection in 2020, his bills totaled more than $167,000. After insurance paid out, Rodriguez Hernandez was owed $5,600, but he couldn’t work because of the COVID-19 pandemic.
“I remember looking at that bill and talking to my mom and saying, ‘I’m going to go bankrupt,'” said Rodriguez-Hernandez, who lives near Monterey.
Ms. Villegas and Ms. Rodriguez-Hernandez’s story is all too common in California, a state with the third-highest average health care costs in the nation.
Pictured above and below, Vicky Villegas sits with Dr. Lise Phan using an EMG machine to check for neuromuscular stimulation. Photo: Brandon Tausig, via CalMatters
California is trying to address their needs with a new cap on health-care cost growth that experts consider the most aggressive in the country. The cap doesn’t mean patients like Villegas and Rodriguez Hernandez will be charged less. The cap is intended to limit how much consumers pay in the long run, first by reining in spending by the health-care industry. Studies have found that up to 30 percent of health-care dollars are wasted on overtreatment and administrative inefficiencies.
California hospitals, doctors, and insurers can’t increase spending by more than 3% a year through 2029, meaning they have to find ways to cut costs so they don’t exceed the target. If they do, state law says the state regulator, the Affordable Care Agency, has the power to impose fines and other penalties “commensurate with the provider’s failure to meet the target.” The law also has guardrails to prevent providers from cutting services to save money.
The cap, which was put in place in April, was modeled on efforts by eight other states, including Massachusetts, to curb skyrocketing health care costs. California went further, forcing health care facilities to give public testimony, requiring performance improvement plans and allowing the state to impose unlimited fines on companies that exceed the cap.
Massachusetts, by contrast, has mandated just one performance-improvement plan and has not fined any providers since it set its own cost-control targets in 2012. It also has the power to fine facilities that spend too much, but state regulators say the fines are too small to be meaningful. Health insurance premiums in the state have risen 43 percent in nine years, outpacing wage growth.
“We felt you needed a whip, something to say, ‘We’re serious. We’re going to set these goals and you’re going to achieve them,'” said Rep. Jim Wood, a Democrat from Ukiah who authored the legislation that created California’s Housing Affordability Commission and spending caps.
State officials say the tougher approach could actually save patients money. Last month, the Affordable Care Agency met in Monterey County, one of the state’s most expensive markets, to discuss the challenges of affordability.
“What’s happening in Monterey will send ripples,” Dr. Mark Ghaly, California’s outgoing Health and Human Services Secretary, said at a meeting where board members discussed regulatory options to address market failures.
State hospital and physician lobbying groups opposed the cost-control cap, calling it unreasonable given soaring inflation over the past two years. They argued for a higher standard, but the commission left the cap at 3.5% next year and plans to lower it to 3% by 2029. Commission members said the figure reflects the average increase in median household income over the past two decades and is directly tied to consumer experience.
California Health and Human Services Secretary Dr. Mark Ghaly, who leads a state commission tasked with lowering health care costs in California, attends a 2022 press conference in Fontana, Calif. Photo by Alisha Jucevic for CalMatters
“Most physician offices and health care facilities” will not meet the target, which will affect patient care, Dr. Tanya Spirtos, president of the California Medical Association, wrote in a letter to the board.
Rodriguez-Hernandez, who had to pay expensive medical bills after his infection, spoke to the committee last month, calling for tougher action against the industry. He works part-time as a bartender in Monterey and part-time as a community health advocate. He used up his savings to pay rent and turned to food banks to keep costs down after his hospitalization. It took him two years to pay off his medical bills. He now has no insurance.
Does it work in other states?
Like California, Massachusetts is known for its world-class health care system, anchored by academic research centers. In 2012, Massachusetts was also one of the states with the highest health care costs, and health care advocates and lawmakers wanted to do something to make health care more affordable.
“We all pay for health care, so we can’t allow it to grow as fast as we want, and the result is more people won’t get the care they need,” said David Seltz, executive director of the Massachusetts Health Care Policy Commission.
Massachusetts lawmakers devised a cost-containment plan. They created a health policy committee to set growth targets for the health care industry and report progress publicly. Initially, the committee set a target of 3.6 percent annual growth. A Commonwealth Fund analysis estimated that in the first five years, private spending on health care would be $7 billion less than it would have been without regulation. Other states modeled their own health care cost-containment plans on Massachusetts’s.
“I believe that that oversight effect, that surveillance effect, has changed market behavior,” Selz said. “Is it enough? No.”
Alex Sheff, senior director of policy and government relations at consumer advocacy group Health Care For All Massachusetts, said consumers are still experiencing rising costs that they cannot afford.
Spending on private health insurance in 2021 outpaced general inflation and wage growth, according to the Health Policy Commission’s most recent annual report. For a family of four, deductibles, copayments and premiums averaged $25,000. About 43% of Massachusetts residents with private insurance are on high-deductible health plans, more than double the enrollment rate a decade ago, when the state first began trying to reduce costs.
The report said the increase in spending was driven primarily by rising prices, not increased use, of health care services. Since 2017, total per capita health care spending has regularly exceeded the benchmark set by the state board.
“When we see premiums continuing to rise at a rapid pace, coupled with rising out-of-pocket costs, it suggests that consumers are not reaping the full benefits of the savings that benchmarking creates,” Sheff said.
Massachusetts needs tougher regulatory oversight and tougher penalties, Sheff said. In the commission’s 12-year history, it has only disciplined one hospital for excessive spending, and the maximum fine it has imposed is $500,000, but Selz said “given the size of these organizations, that amount is not a significant deterrent.”
California, he says, is poised for even greater success in that regard.
California spending trends
Despite California having near-universal health insurance, more than half of residents still struggle to afford health care, according to a new state survey by the California Healthcare Foundation — a finding that feeds directly into the state’s new Medicaid Commission.
Monterey County in particular has come under the board’s scrutiny for overpaying health care. For months, working-class Monterey families have been going to the board in Sacramento to denounce soaring health care costs. Some employers are paying employees to see doctors outside the county because it’s cheaper. Meanwhile, people like Rodriguez-Hernandez are living with the stress of medical debt.
“$5,000 is a lot of money for people like us. A lot of working-class people don’t have savings,” Rodriguez Hernandez said.
California’s new Affordable Care Commission is focusing on health care costs in Monterey County, including those at Monterey Peninsula Community Hospital. Photo: Manuel Orbegozo for CalMatters
Local advocacy has prompted the Affordable Housing Commission to conduct a community survey and hold its latest meeting on the Peninsula.
Prices at the county’s three major hospitals — Monterey Peninsula Community Hospital, Salinas Valley Memorial Hospital and Natividad Medical Center — are significantly higher than the state average and the average for Bay Area hospitals, according to a presentation by Christopher Whaley, a national expert on hospital pricing.
The average annual premium increase for plans in the region has been more than 10% since the state implemented the Affordable Care Act’s marketplaces, according to data from Covered California.At the same time, the region tends to be healthier than most other parts of the state.Representatives of the California Public Employees Retirement System, which provides health insurance to about 1.5 million people, also told the committee that high prices aren’t improving quality.
Aiming to cut costs by $50 million
At least one Monterey hospital is trying to cut costs in the wake of public scrutiny: Montage Health, parent company of Monterey Peninsula Community Hospital, said it aims to cut $50 million in costs over the next two years.
“Montage Health is committed to continually finding ways to improve efficiency and reduce the burden of health care costs while ensuring our communities have access to quality local health care,” Mindy Maschmeyer, director of marketing and communications for Montage Health, said in a statement.
Natividad, the county’s safety net hospital, said in a statement that its services are “available to everyone, every day, regardless of ability to pay, especially vulnerable and underserved populations.”
Evaluating market failures is one of the responsibilities of the Housing Affordability Commission, but it’s unclear whether the commission will take further action in Monterey. Commission Chairman Ghaly said at a recent conference that state regulators need to better understand why housing prices are so high in California without improving quality.
“What are we getting for the money we’re paying? That’s probably the key question Californians ask every time they open their pay slip: What is that (health insurance) money going to?” Ghaly said.
Vickie Villegas outside her home in Monrovia. Photo by Brandon Tausik for CalMatters.
Villegas said her multiple sclerosis symptoms have improved recently, though her family has set up a GoFundMe to help her receive a stem cell transplant in 2021. When she was diagnosed in 2017, Villegas was the family’s breadwinner and said she chose to prioritize paying the mortgage and paying her children’s college tuition.
“I’ve been doing my best to get through this, but I don’t think that’s the case for everybody. Some people don’t have access to adequate care because of (the cost),” Villegas said.
It may take years for Californians to become aware of the spending standards, but Wood said he believes it will lower costs.
“It’s no longer business as usual, and I think it’s infuriating for businesses that are happy with the way things have always been,” Wood said.
This article was originally published by CalMatters on September 18, 2024, and produced with support from the California Healthcare Foundation.
